More foreclosures about to hit

Mark Zandi, chief economist at at Moody's Economy.com in West Chester, Pennsylvania, said in an interview with Reuters home prices will resume their decline by early next year as another flood of foreclosures hits. Home prices, as measured by the Standard & Poor's/Case-Shiller U.S. National Home Price Index, will trough in the third quarter of 2010 after declining 38 percent, Zandi said. The index peaked in the second quarter of 2006 and hit a trough in the first quarter of 2009, a drop of about 32 percent. Home prices in many regions have been rising, but that's because foreclosure sales fell over the summer and fall as mortgage servicers tried to put stressed homeowners into the Home Affordable Modification Program and other modification plans. "This lull in foreclosures sales has resulted in the price gains in the past few months," he said. Zandi said 7.5 million foreclosure sales will have taken place between 2006 and 2011. The majority of these sales, however, have n ot emerged yet, with 4.8 million foreclosure sales expected between 2009 and 2011.

Government attempts to make short sales easier

The Obama administration laid out final guidelines on Monday that should make it easier for some financially troubled borrowers to sell their homes. The guidelines are designed to encourage the use of short sales, and it also makes it easier for borrowers to voluntarily transfer ownership of properties through a "deed in lieu of foreclosure." Under the plan, borrowers will receive $1,500 from the government if they sell their homes for less than the amount of their mortgages. Mortgage-servicing companies will also receive $1,000 for each completed short sale. The program is open to borrowers who may be eligible for the government's loan-modification program but don't end up qualifying, or are delinquent on their modification, or request a short sale or deed-in-lieu transaction. The short-sale program is the latest addition to the Obama administration's $75 billion foreclosure-prevention plan, which includes incentives for mortgage companies and investors to rework troubled
loans. The government first said in May that it would include short sales in the program, but it has taken months to finalize the details. Under the new guidelines, second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgages, meanwhile, can collect up to $1,000 from the government for allowing such payments. Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines.

Black Friday sales slump

Early sales results for the month released today showed many merchants did not get the big boost they were seeking from Black Friday. Thomson Reuters, which tracks monthly same-store sales for 30 chains like Target, Gap and J.C. Penney, said 15 of the retailers in its Same Store Sales Index have reported their results. Of those 15, 85% missed analysts' sales estimates while 15% beat expectations. Children's Place, a seller of clothing and accessories for young kids, suffered a 13% drop in its same-store sales versus expectations for a 1% increase. Sales at another youth merchandise chain Abercrombie & Fitch slumped 17%. Elsewhere, total sales at No. 1 warehouse club operator Costco rose 6% compared to a forecast for an increase of 8.1%. Same-store sales are a key measure of a retailer's performance and measure sales at stores open at least a year. Overall, the firm has expected November sales for the group to grow 2.1% compared to a steep 7.8% decline last year. Howeve r, the much softer-than-expected early numbers prompted Thomson Reuters retail analyst Jharonne Martis to say that November's performance will most likely be worse than expected. November is a critical month for retailers since it marks the start of the year-end holiday shopping season. November and December together can account for 50% or more of merchants' annual sales and profits for the full year.

New unemployment claims down

First-time claims for unemployment insurance dropped by 5,000 to a seasonally adjusted 457,000, the lowest total since the week of Sept. 6, 2008, the Labor Department said today. Wall Street economists had expected an increase, according to a survey by Thomson Reuters. But claims remain above the levels that most analysts say would be consistent with an economy that is adding jobs, and the unemployment rate is at 10.2 percent and expected to keep climbing into next year. The nation's economy has lost jobs for 22 straight months. A Labor Department analyst said the closing of state unemployment offices for last week's Thanksgiving holiday was responsible for some of the decline (ya think?). The department's employment report for November, to be released tomorrow, is expected to show that employers shed another 130,000 jobs after cutting 190,000 in October. Economists forecast the unemployment rate will remain at 10.2 percent. Meanwhile, the number of people claiming unem
ployment benefits for more than a week rose by 28,000 to 5.5 million, the department said, and that total doesn't include millions of unemployed Americans who are receiving benefits under extended programs paid for by the federal government.

FHA loans getting more expensive?

Currently, Federal Housing Administration (FHA) loans comprise more than 30% of the entire home-loan market. But as some of those insured loans have defaulted, the FHA loan-guarantee fund has slipped below the Congressionally mandated 2% level. As a result, some lawmakers are suggesting that FHA loans need to be more expensive to obtain. A House bill, the FHA Taxpayer Protection Act of 2009, would increase the minimum down payment required to obtain an FHA loan to 5% from 3.5%. That, sponsor Rep. Scott Garrett, R, N.J., believes, would make borrowers more committed to maintaining their mortgages. Almost 90% of FHA purchase loans issued between January and August 2009 had loan-to-value (LTV) ratios of 96 or higher, according to written testimony from Robert Story, chairman of the Mortgage Bankers Association. That amounts to a very small commitment on the parts of buyers. "We have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan -- to make sure that FHA borrowers have more 'skin in the game' and a stronger equity position in their loans," said Housing and Urban Development secretary Shaun Donovan. Still, he added, "FHA is not 'the next subprime' as some have suggested."

Foreclosure snapshot

- More than 1.5 million homes have been lost to foreclosure, according to the Center for Responsible Lending.
- Goldman Sachs is projecting 13 million foreclosures of all types during the next five years.
- One in 10 homeowners are late with mortgage payments, according to the Mortgage Bankers Association.
- Owners owe more than the home is worth in nearly one in five homes, according to First American Core Logic.
 

HOME